Top 10 at 10: Dubai bankrupt; Russia goes loonie; Yuan devaluation?; LAQC video; Dilbert

Here are my Top 10 links from around the Internet at 10am. I welcome your additions and comments below or please email your suggestions for Friday's Top 10 at 10 to bernard.hickey@interest.co.nz We're fully engaged at interest.co.nz 1. Dubai bankrupt - The government of Dubai has asked its banks for a 6 month delay on its schedule of debt repayments, the New York Times reported Is this the event that will unnerve the world's financial markets again? Dubai owes its banks US$80 billion.

The terse statement came in the midst of negotiations between creditors and Dubai World, the corporate arm of Dubai, which has led many of its most ambitious real estate projects but is now struggling under the burden of $59 billion in liabilities. For the banks that financed the debt-fueled ascent of Dubai "” analysts' estimates put its total debt at about $80 billion "” the move by Dubai to obtain a standstill highlights a truth that many in the region had been trying to make clear to bankers but that they have so far been avoiding: Namely, that Abu Dhabi, the oil-rich governing emirate of the United Arab Emirates would not unconditionally bail out its more profligate neighbor and that a genuine restructuring of Dubai's debt, with pain being shared equally between Dubai and its bankers, would need to take place. The news came as a shock to the markets as well as Dubai's bankers. The bonds of Dubai World's property developer, Nakheel, dropped sharply and the cost of insuring against a Dubai government default soared.

2. Too Big To Fail Too Big To Ignore - Even the mainstream media in the United States has now cottoned on to the idea that the 'Too Big To Fail' banks need to be broken up and that politicians in Washington might actually be thinking of doing something about it. We'll see whether the lobbyists can subvert democracy again, but the momentum is definitely building. Here's the LA Times report. HT David via IM

Angered by bailouts that have kept corporate titans such as American International Group Inc. afloat, members of a key House committee last week voted to give the government vast new power to downsize private companies, something that happens now only in the most egregious antitrust cases. Instead of helping cushion the fall of Wall Street powerhouses through government aid or variations on traditional bankruptcy, there is growing momentum in Congress to cut those firms down to size before they start teetering to limit the damage if they do collapse. "The era of the big bank is over," said Simon Johnson, an MIT professor and former chief economist at the International Monetary Fund. The dramatic idea -- unthinkable before the financial crisis -- carries important ramifications for the future of the economy and the ability of U.S. financial institutions to compete with giants abroad.

3. Poor Standard - Standard and Poor's is hammered in this piece by Stephen Bartholomeuz from Business Spectator about its new analysis showing most of the world's banks, including the Australian (our) banks, need extra capital.

Among the Australian banks "“ four of the relative handful of remaining banks rated AA or better by S&P "“ the agency placed ANZ and NAB in the third quintile of the sample of 45 major banks it assessed and Commonwealth in the fourth quintile. The locals must have made some representations because S&P today issued a statement reaffirming their AA/stable ratings and saying that while the Australians' RAC scores were close to or slightly higher than the global average for major banks, it considered their ratings stable and supported by very strong business and financial considerations as well as the demonstrated ability to raise capital if needed. Pre-diversification the Australian banks' RAC scores ranked them 22nd (ANZ), 27th (NAB) and 34th (CBA) within the 45 banks assessed. (Westpac wasn't in the sample). That is quite clearly at odds with both their reputations as among the strongest banks in the world and, indeed, their conventional credit ratings. Oddly, two of the US investment banks which are now technically banks (but still trading like investment banks) "“ Goldman Sachs and Morgan Stanley "“ were among S&P's top-rated. ING, in the process of being broken up after being bailed out by the Dutch Government, is the third most highly-rated. There are a number of banks whose capital bases have been supported and/or rebuilt by taxpayers that have higher RAC scores than the Australians. One thing that does stand out is that the Australian banks were penalised for their relatively low levels of geographical diversification and relatively high levels of asset concentration. In effect, they were penalised because they were predominantly exposed to the Australian economy and to Australian residential mortgages. Had they been exposed to the US, UK, Irish and Icelandic economies, and the US and UK housing markets, no doubt they would have fared better "“ not necessarily in terms of their results or balance sheets but in being awarded greater diversification benefits in their RAC (Risk Adjusted Capital) scores.

4. No worries mate - The Deputy Governor of the Reserve Bank of Australia, Ric Battellino, has defended Australia's high house prices as good value for money because of Australia's strong economy, high migration and rising incomes, the Sydney Morning Herald reported. Time to buy a one-way ticket to the lucky country? Although I wonder about Battellino's logic. He appears to be saying that Australians spend less on health and have lower interest rates so can afford to spend much more on housing. That's ok then...

''Census data shows at 2006 there were 8 per cent more dwellings in Australia than there were households,'' Mr Battellino said. ''Presumably, most of this surplus reflects holiday houses and second houses. ''In short, a high proportion of dwelling investment is going into improving the quality of existing dwellings and building accommodation additional to primary residences. ''If as a nation we want to continue to do this, while at the same time providing enough dwellings for the growing population, the overall amount of dwelling investment undertaken will need to increase relative to GDP.'' While there was ''a common perception that house prices relative to household income in Australia are high'', the country's population was ''more concentrated in a few large cities'' than other populations and Australians had more free income with which to pay for housing. ''Australians seem to spend less of their income on non-housing consumption than is the case for US households, with a significant part of this difference explained by lower health costs in Australia,'' Mr Battellino said. ''Australian households as a whole appear to have the financial capacity to sustain a relatively high ratio of housing prices to income. ''It is certainly the case that the ratio is higher now than it was 20 years ago. However, this is largely explained by the fact that lower interest rates have allowed households to take out bigger home loans without increasing housing loan repayments. In turn this has given households more buying capacity in the housing market, which has been reflected in house prices.''

5. Achtung bankfeuer - The Bundesbank has warned German banks to prepare for 90 billion euros of losses over the next year. These delayed shockwaves still pose a danger to global recovery, Ambrose Evans Pritchard at the Telegraph points out. HT Steven Jones via email.

The venerable bank said in its Stability Report that the world had narrowly averted a "virtually uncontrollable" collapse in the late summer of 2008. While the credit system has partly stabilised, the underlying problems "are still far from being overcome" and money markets are not yet functioning properly. "It is already clear that the financial system will be severely tested going forward. Downside risks remain pre-dominant," said the report. The danger is that a long phase of stagnation and rising job loses in the West sets off "spiralling loan losses in both industry and in the residential and commercial real estate markets. In such an unfavourable scenario, negative feedback between the real economy and the financial system could gain added momentum." The Bundesbank said the next wave of bank write-downs will come from loan book losses as the default rate on lower-tier companies tops 14pc in the US and 12pc in Europe. German banks alone will have to write down €50bn to €70bn of loans over the next year. Losses from sub-prime securities are mostly in the open already. Further write-down from collateralised debt obligations (CDOs) - mostly tranches of mortgage debt packaged as securities - are likely to be €10bn to €15bn. Dominique Strauss-Kahn, the head of the International Monetary Fund, told Le Figaro on Wednesday that banks worldwide have so far admitted to just half of the US$3.5 trillion (£2.1 trillion) of likely damage.

6. New loonie tune - Russia's central bank has announced plans to buy Canadian dollars (known as the Loonie) to diversify its holdings away from the US dollar, Reuters reported. This is just what we need. Other central banks buying our currency because its in the 'commodity basket' along with the Canadian dollar, the Australian dollar, the South African Rand and Brazilian Real. One of the benefits of the NZ$ being the 9th most traded currency in the world.

Russia's central bank said on Wednesday it was preparing to invest some foreign exchange reserves in Canadian dollars to diversify its portfolio and lessen reliance on the U.S. dollar in international trade. The decision was not entirely a surprise, as a central bank official said in September that Canadian and Australian dollars could be added to reserves. Analysts warn investors hoping for strong Canadian dollar gains on the back of central bank buying are likely to be frustrated by the Bank of Canada. Credit Suisse's Katzive said that if reserve diversification flows send the Canadian dollar higher, the country's central bank will be more reluctant to tighten monetary policy. Canadian interest rates are already at a record low and the Bank of Canada has conditionally pledged to keep them there until at least the middle of next year. Katzive said a delay in tightening would make Canada's currency an attractive funding vehicle. Investors could borrow cheaply in Canadian dollars and sell them to buy assets denominated in more growth-sensitive currencies such as Australia's.

7. Geithner garotted - Eliot Spitzer (remember him) has written a riveting piece in Slate.com exposing Treasury Secretary Timothy Geithner as a weak liar who used gazillions of taxpayer money to help his mates on Wall St. HT Roelof.

The issue has been festering for months: Why were AIG's counterparties"”including Goldman Sachs, JPMorgan Chase, and UBS"”paid 100 cents on the dollar when the feds rescued the insurance giant, helping raise the cost of the bailout to nearly $200 billion? A new report issued by Special Inspector General Neil Barofsky now reveals that government officials, notably then-New York Fed President and current Treasury Secretary Timothy Geithner, grievously damaged the nation and capitulated to the very banks they should have been supervising. Barofsky's report reads like a case study in failed negotiation. The New York Fed didn't have the backbone to stand up to Wall Street, didn't understand its capacity to protect taxpayers, and didn't appreciate that its responsibility was to taxpayers. Geithner and the Fed have proffered a series of spurious reasons for their willingness to pay AIG's counterparties"”the leading Wall Street banks"”in full while demanding concessions from every other entity with whom the Treasury or the Fed dealt. Geithner suggested he could not use the threat of AIG's default in the absence of a federal bailout to get concessions from AIG's creditors. Why not? That is exactly what the government did with the auto industry, and rightly so. The entity providing financing to a near-bankrupt institution must always seek contributions from everyone else at risk. The fact that the Fed had a strong predisposition against letting AIG go into bankruptcy didn't mean the Fed shouldn't have used every opportunity to wrangle concessions from the other parties. For Geithner to say it would have been "unethical" to negotiate for concessions is sheer silliness. It is akin to saying that having decided that you are willing to pay up to $250,000 for a house, it is unethical to negotiate to buy it for $225,000.

8. Yuan devaluation? - Societe Generale's strategist Albert Edwards has suggested something most haven't thought of: a yuan devaluation. HT FTAlphaville. Heaven help us all.

Any synchronized end in Chinese and US recovery will undoubtedly heighten geo-political tensions and accelerate the inevitable trend towards protectionism. The trend towards competitive devaluation will also increase. And in the case of China, if its economy founders unexpectedly and unemployment soars, no lever to restore growth should be ruled out, including devaluation. With the potential for the dollar to soar, in the same way the yen did in 2008 as risk carry trades unwound, this may be all too much for a beleaguered Chinese economy. With a Chinese trade deficit and a loss of confidence in the growth miracle, China's reserves will in all probability be in decline. What better way of meeting the American's call for greater flexibility than to give them what they want?The Chinese may yet respond to the new market pressures and devalue. 2010 could be a very lively year indeed

9. Credit card fees - This story in the New York Times points out some unexpected consequences of regulation in Australia to reduce credit card fees. It acutally increased the fees. Sound familiar?

When Steve Franklin bought four plane tickets on Qantas last June, he faced an unexpected expense: a surcharge of 7.70 Australian dollars on each of the 136.70 dollar ($126) tickets "” just for using his Visa credit card. Mr. Franklin, who planned to fly his parents and his 7-year-old twin daughters from Sydney to Adelaide, knew that changes to credit card rules had affected the cost of using plastic, but the extra 5.6 percent seemed excessive. The charges were the consequence of changes in credit card rules in Australia that were aimed, in part, at reducing the cost of hidden fees for using plastic. But the law, passed six years ago, also allowed merchants to tack on new charges, and many have done just that, in some cases with fees that exceed the old ones.

10. Completely relevant and not funny video - Matthew Gilligan explains here the benefits of LAQCs. Watch it and weep (if you're a mug PAYE salary or wage earner). Then buy a one way ticket to Australia.